The Corporate Welfare Trap Has Snared Republicans and Democrats Alike

by Burt on October 19, 2012

On the subject of corporate welfare (giving federal subsidies to businesses), Republicans have historically been as bad as Democrats. Both parties have sometimes rushed to the federal trough to dole out cash to favored friends.

For example, the Reconstruction Finance Corporation, a program of government bailouts, was set up by President Hoover in 1932 to bail out corporations to help stop the Great Depression. It didn’t work. Thousands of large U.S. companies wanted capital, but only a fraction of them could get it. Thus, leading Republicans of the 1930s, including former Vice-President Charles Dawes, Maryland Senator Phillips Gouldsborough, and Secretary of Commerce Roy Chapin, were at the front of the line to get government subsidies for their banks. When FDR became president, the Democrats took their turn at slinging taxpayer dollars at key political friends. Jesse Jones, FDR’s head of the RFC, even gave loans to FDR’s relatives and tried to give a subsidy to Walter Trohan, a major news reporter at the Chicago Tribune.

After World War II, with the Great Depression ended, President Truman kept the RFC around because he could use it to reward friends, but the process of granting corporate subsidies also led to internal corruption. For example, under Truman, John J. Hagerty headed the RFC in Boston. He endorsed a loan to the Waltham Watch Company and then resigned from the RFC to take a job with the Waltham Watch Company– for three times his RFC salary.

Interestingly, the town of Waltham is back in the news today with more corporate subsidies. The corporation A123 Systems, which makes electric vehicle batteries, received a $249,000,000 federal subsidy from President Obama’s stimulus package. Now A123 Systems is broke and can’t make debt payments. Solyndra lost more than $500 million in federal loans as well.

The Department of Energy cleverly implies that such loans were okay because Republicans and Democrats tended to support them—at least the one for A123 Systems. On October 17, USA Today reported that Michigan Republicans and Democrats alike signed a letter of support for A123 Systems and three other companies. Until Republicans distance themselves from corporate welfare, they will be subject to the charge that their commitment to limited government is limited to their political self-interest, not to principle. The 2012 election would be an excellent time for Republicans to honor the Constitution and make a clean break: no more support for corporate welfare at home or abroad.

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Burt Folsom will be online this weekend, speaking at Young America’s Foundation Reagan Ranch High School Conference in Santa Barbara, California. Go to yaf.org for more information.

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